BU481 Chapter Notes - Chapter 4: Perfect Competition, Switching Barriers, Wield
Document Summary
5 competitive forces that play in any industry to determine industry"s profitability: Competitive rivalry, threat of new entrants, supplier power, buyer power, and threat of substitute products. Weaker forces = greater opportunity for superior performance by firms within the industry. Examining 5 forces helps organizations understand how value is created by companies and captured by industry players. Greater the # of competitors, closer the industry is to perfect competition. Fewer competitors = greater likelihood for higher profits. New entrants who are diversifying from outside industry may be able to leverage capabilities or offset costs, so they alter economics of how firm compete in an industry. Economies of scale: as volume of production increases, unit costs per product decreases. Existing firms that already made significant investments in manufacturing will hold absolute cost advantage over potential new entrants. Multi-business firms create scale economies by sharing operational or functional costs with other business units or exploiting existing vertically integrated production and distribution systems.
